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A comparative analysis of ex ante credit spreads: Structured finance versus straight debt finance

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  • Marques, Manuel O.
  • Pinto, João M.

Abstract

This paper examines the pricing of structured finance (SF) – asset-backed securities (ABS), mortgage-backed securities (MBS), and collateralized debt obligations (CDO) – and straight debt finance transactions. Using a cross-section of 24,525 European bonds issued by financial and nonfinancial firms in the 2000–2016 period, we show that although ratings are the most important pricing determinant for SF and corporate bonds (CB) at issuance, investors rely on other contractual, macroeconomic, and firms’ characteristics beyond these ratings. We find that CDO tranches have, on average, higher credit spreads than similarly rated CB, while investors are not compensated for facing higher systematic risk components in relation to investment-grade ABS and MBS. Our results also support the hypothesis of SF transactions as mechanisms of reducing funding costs: SF transactions’ weighted average spread is lower than that of comparable CB and originating firms’ creditworthiness does not deteriorate when compared to a sample of matched firms.

Suggested Citation

  • Marques, Manuel O. & Pinto, João M., 2020. "A comparative analysis of ex ante credit spreads: Structured finance versus straight debt finance," Journal of Corporate Finance, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:corfin:v:62:y:2020:i:c:s0929119920300249
    DOI: 10.1016/j.jcorpfin.2020.101580
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    7. João M. Pinto & Mafalda C. Correia, 2017. "Are Covered Bonds Different from Asset Securitization Bonds?," Working Papers de Gestão (Management Working Papers) 01, Católica Porto Business School, Universidade Católica Portuguesa.
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    9. Paulo P. Alves & M. Ricardo Cunha & Luís K. Pacheco & João M. Pinto, 2022. "How Banks Price Loans for LBOs: an Empirical Analysis of Spread Determinants ," Journal of Financial Services Research, Springer;Western Finance Association, vol. 62(3), pages 163-200, December.
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    11. Fabio Panetta & Alberto Franco Pozzolo, 2018. "Why do banks securitise their assets? Bank-level evidence from over one hundred countries in the pre-crisis period," Temi di discussione (Economic working papers) 1183, Bank of Italy, Economic Research and International Relations Area.
    12. van der Plaat, Mark T., 2021. "How to Measure Securitization: A Structural Equation Approach," MPRA Paper 109735, University Library of Munich, Germany.
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    More about this item

    Keywords

    Debt pricing; Structured finance; Corporate bonds; Mispricing; Cost of funding;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

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